Domestic Partner Benefits: Grossing Up to Offset Imputed Income Tax
A number of employers have looked to account for the income tax burden of domestic partner benefits by "grossing up" an employee's salary, similar to how employers can gross up award or bonus payments to an employee. For example, a holiday bonus of $500 could actually be recorded for tax purposes as a higher value, so that the employee actually receives $500 after taxes. Employees that are taxed on the imputed value of domestic partner benefits generally must pay those taxes each payroll period.
The Human Rights Campaign Foundation is not aware of any employers that have implemented this benefit. However, as of December 2007, over 40 major U.S. employers have supported legislation that would end the tax disparity at the federal level.
How "Grossing Up" Works: An Example
Consider an employer that wants to gross up an employee in the 20-percent tax bracket. The fair market value of the employee's non-dependent domestic partner coverage is determined to be $200 per pay period.
The emplyee will incur $40 of tax ($200 x 20 percent) for that pay period. To gross up the employee, the employer would need to make an additional payment of $48 to this employee. Forty dollars of the gross-up amount would serve as reimbursement for the tax incurred on the benefits coverage and the other $8 ($40 x 20 percent) would serve as an approximate reimbursement of the tax paid on the gross-up payment itself.
Note that this example does not include state tax, Social Security (FICA) and Medicare taxes.
This example appears in "Domestic Partner Benefits: An Employer's Guide, 4th edition." Copyright 2007 Thompson Publishing Group, Inc.
Sample Proposal for Grossing Up
Use this sample proposal as a guide when advocating for your own employer to implement grossing up as a standard for employees enrolled in domestic partner benefits that pay an additional imputed income tax.
